9 November 2026
The Chancellor delivered the Autumn Budget on 28 October. While the standard VAT rate and VAT registration threshold remains unchanged, a number of important sector specific measures were announced, most of which take effect from 2027 onwards. This gives affected businesses some time to understand the changes and prepare.
New rules on overseas services
From 1 April 2027, the reverse charge on services purchased from overseas will apply only where the UK customer is actually registered for VAT. Where the UK business customer is not VAT registered, the overseas supplier will instead be required to charge and account for UK VAT, subject to the usual place-of-supply rules.
This removes the current requirement for an unregistered business to count relevant overseas services towards the VAT registration threshold under the reverse charge rules.
The change raises some interesting practical questions. For example, what happens to businesses that are currently VAT registered primarily because their overseas service purchases brought them over the registration threshold? Some may find that they are subsequently eligible to deregister.
There is also the practical question of how HMRC will police compliance by overseas suppliers that are newly required to register and account for UK VAT.
Online marketplaces take on more responsibility
From October 2027, VAT online marketplace liability rules are to be extended to certain sales made by UK businesses through online platforms. This represents a significant extension of the existing rules, which were introduced principally to address compliance risks involving overseas sellers.
The proposed threshold is £90,000 of annual sales per platform. However personal sales, second-hand goods and business-to-business transactions are excluded.
Further detail on precisely how the new regime will operate will be important, particularly for businesses and platforms potentially within its scope.
Taxis and private hire vehicles
From 2 January 2028, larger taxi and private hire operators that act as agents will, for VAT purposes, be treated as making the passenger transport supply themselves. Where the operator is VAT registered, it will therefore account for VAT on the full fare rather than simply on its agency income.
The measure is aimed at larger operators. The final threshold has not yet been set, but £50 million of annual fare turnover is the government’s lead option, with further consultation to follow.
Energy: Domestic fuel zero-rate extended, ESM zero-rate relief not extended, EV charging taxed
There was some positive news for households. The temporary 0% VAT rate on qualifying domestic electricity, introduced from 1 October 2026, is being extended so that it runs until 1 July 2027 rather than ending on 31 March 2027.
The current temporary zero-rate for energy saving materials (ESM) will unfortunately end 31 March 2027, as planned, and will revert back to 5%. Heat batteries will however be included within the 5% ESM VAT relief from 1 April 2027.
Electricity from publicly accessible charge points is to be confirmed in statute as standard-rated, with effect from 1 November 2026. This is currently already HMRC’s view and looks to have been introduced to limit the impact of current litigation challenging the application of VAT at 20% to historic periods, should HMRC lose current litigation.
New Zero-rate for Land for Social Housing
There is good news for housebuilders and registered social housing providers. The government has confirmed that it will proceed with a new zero rate for land sold to registered providers of social housing from 1 April 2027.
One of the attractions of the reform is that it should reduce the need to structure transactions around so-called “golden brick” arrangements, under which development generally has to progress sufficiently before the disposal in order for the existing zero-rating provisions to apply.
This should simplify transactions and improve cash flow in the social housing sector, though may adversely delay existing arrangement to take advantage of the change.
New legislation for VAT126 refund claims
The Budget also announced potentially important changes for non-VAT registered bodies that recover VAT using form VAT126, including academies, local authorities and certain charities.
New legislation will enable HMRC to introduce additional powers and safeguards so that VAT126 claims can be treated more like equivalent refund claims made by VAT-registered bodies. These could include powers to assess amounts previously refunded and corresponding rights of appeal against HMRC decisions.
Given the level of HMRC scrutiny already being seen on VAT126 claims, particularly in the academy sector, this could be a significant development. There may be winners and losers: HMRC would potentially gain clearer assessment powers, while claimants should benefit from clearer statutory safeguards and appeal rights.
Other VAT measures
Medical deputies: From 1 May 2027, the specific exemption for the supply of a deputy for a registered medical practitioner will be removed. However, there is an important distinction between the supply of medical staff and the provision of medical care. Genuine deputising services consisting of medical care can continue to qualify for exemption.
Donated medicines: A new zero rate applies to qualifying medicines supplied free of charge, including qualifying donations for NHS treatment, clinical trials and certain post-trial treatment. The relief applies from 23 June 2026.
Travel services: The VAT treatment of travel remains an area to watch, particularly the future of the Tour Operators’ Margin Scheme. Businesses operating in the travel sector should keep a close eye on developments.
E-invoicing on the horizon
Mandatory e-invoicing for VAT invoices takes effect from April 2029.
The government has published an implementation roadmap and opened a consultation on using e-invoice data for digital reporting, which closes on 20 January 2027.
Although further away, mandatory VAT e-invoicing is another major change businesses need to have on their radar.
2029 may sound distant, but businesses replacing or upgrading accounting, ERP and billing systems should be thinking about e-invoicing much earlier. The costs and practical difficulties will be significantly greater for businesses that leave system changes until the last minute.
What should businesses do now?
For most businesses there is no immediate need for action, but the Budget provides plenty to think about. In particular, businesses buying services from overseas, online marketplaces, private hire operators, social housing providers and bodies making VAT126 claims should consider how the changes may affect them.
Please do get in touch if you would like to discuss how any of these measures could affect your business or organisation.
